Hofmeister’s book also persuasively argues that oil companies’ sometimes poor actions and reputations combined with politicians’ false promises have created an untenable framework for moving forward in addressing the United States’ energy future. After he retired from Shell in 2008, Hofmeister founded the nonprofit group Citizens for Affordable Energy, whose goals include gaining popular support for creating an independent regulatory agency called the Federal Energy Resources System—supported by numerous regional boards—manned by experts from a wide variety of fields beyond the energy sector, such as academic, labor and environmental groups.
This week, Hofmeister will be in Santa Fe for an author talk. In advance of his appearance, SFR presents an excerpt from Hofmeister’s book. The author also spoke with SFR via phone (and provided a few follow-up answers by email) on a wide variety of energy-related topics.
It’s hard to talk about oil companies right now without thinking about BP. What is your reaction to the Gulf spill?
It’s the worst possible nightmare of any oil executive because this just is a human-made event, through either incompetence or bad judgment, where multiple bad judgments or lack of competence took place. You fear these kinds of things happening and you build into your business plan all kinds of risk mitigation, all kinds of backup and alternatives and different ways of reviewing things so you don’t ever have something like this occur. The fact that it’s now occurred means you’re in real trouble because you don’t have any backup to a blowout system. The blowout preventer is the backup, by government regulation, by industry practice. The blowout protector is your ultimate fail-safe mechanism. And yet it looks like they were operating with a defective blowout protector; that’s just unconscionable, it’s unheard of. For that to occur means any other misjudgments or poor decisions just add to the complication. But it is what it is so therefore you have to deal with it.
The relief wells have to be drilled; if the relief wells fail, you have to find some other method to capture that oil, you can’t keep pouring it into the Gulf of Mexico. When the CEO of the company [Tony Hayward] says ‘It’s only a trickle relative to the Gulf,’ that’s an absurd statement, that’s just irresponsible and doesn’t reflect sound judgment, in my opinion. And so you have a magnitude of problems piling on top of each other. And, to make matters worse, you get short-term-minded politicians jumping in with their own solutions, which could cause even more harm over time to the American people and the American economy by calling into question whether we should even be drilling our own oil. The moratorium is a complete political play for the sake of certain constituents, without regard that upwards of 50,000 people might lose their jobs for no good reason other than fear. And, my goodness, if fear controlled our economy, no one would fly, no one would work in factories, no one would drill for oil, no one would work in mines. We may as well shut everything down.
Given that much of your book argues that political posturing has contributed to stalled energy policy and to oil companies’ reputations, how would you characterize President Obama’s reaction to the BP spill?
The president’s involvement in the career future of a business executive is misplaced. I don’t think any president has a role to play in telling a board of directors who should or who should not manage a particular company. It’s demeaning of the office to get into that kind of decision making. The ‘boot on the neck of’ language is inappropriate to the relationship that should exist between the business community and the governmental leadership. I think the hostility that has been shown and continues to be shown to a company that knows it’s made the mistake of a generation, or of a century—the mistake will not be forgiven—but the continued harassment of that company and everything that it’s trying to do doesn’t speak well for any company that might make a mistake in the future. And it puts the United States, in terms of business investment, at risk. In other words, there’s a certain strain of authoritarianism that is showing itself now that is unbecoming of the nation’s largest economy. I fear there is a growing mistrust and a growing disrespect between the administration and the commercial leadership of the nation. And that is not good for anybody.
You were president of Shell during Hurricane Katrina; did that experience shape or change your views on the dynamic between government and oil companies?
I think it reinforced a deep concern that I had and much of the industry had in terms of the operational incompetence of the federal government. I have no complaints about the federal government’s role as regulator, its role as rule writer, its ability to go through the give and take of discussing the technical implications of rule writing. But when the federal government is called upon to operate, to make real-time decisions under stressful conditions, Katrina demonstrated that it is not capable of doing that. And we see it playing out all over again in the aftermath of the blowout: the federal government’s fragmentation, multiple chains of commands through multiple agencies, each trying to achieve its own purpose with nobody put in charge. The amazing thing about this Gulf spill is nobody has been put in charge of the entirety of the Gulf spill. So you have decision-making across multiple agencies that don’t talk to each other, don’t report to each other and, on the ground, you end up with chaos.
I recently read an article in the UK Guardian about oil spills in Nigeria, in which leaders there essentially accused oil companies of not caring about their interests, and treating accidents in the US differently than those abroad. How would your views of where American energy policy needs to go impact US oil interests abroad?
I disagree with those who suggest that the oil spills in Nigeria do not cause companies to be concerned. No oil company wants to see oil spilled, and every company knows that spills will have to be cleaned up, usually by the companies whose oil has been spilled. There is significant criminal gang activity in Nigeria causing the spills due to theft of oil by drilling open pipelines. Companies such as my former company utilize one standard worldwide so that behaviors do not vary between countries. When it comes to safety, environmental protection and social responsibility, I believe that all companies should operate to a common standard worldwide. It makes no sense for the US to export its hydrocarbon risk to other parts of the world by tolerating lower standards elsewhere.
So to simplify your energy platform, you believe there needs to be a lot of diversity in how we get our energy, including offshore oil drilling and drilling on federal lands, both of which are politically divisive issues. Have you been able to successfully argue someone from one side of that issue to another or to seeing a more centrist point of view?
Not yet. Not people currently in charge. And that doesn’t mean I’m giving up, but it does mean I’m going in a different direction by appealing to the common sense and the pragmatism of grassroots Americans, who ultimately choose who represents them in government. I knew from the beginning that dealing with elected officials, current incumbents, regardless of party, would be a very difficult process, and that has proven itself out. It’s because of the partisanship that exists and the ideology that’s wrapped up in that partisanship on a subject that really doesn’t need more ideology. Energy needs pragmatism. It needs rational, logical decision-making and outcome. And it needs long-term planning, medium-term planning, short-term planning. All we seem to be able to do in Congress or in the White House is what makes sense during the term of the incumbent. We need continuity beyond presidents, beyond congresses, and we’re not getting that continuity. And the solution I offer is the independent regulatory approach, which has done a darn good job for the last 97 years of managing our monetary system.
Many people, it seems, distrust large oil companies—and corporate America in general—because of the perceived influence lobbyists have over politicians. The oil industry, for example, has donated more than $238 million to candidates and parties since the 1990 election cycle. What’s your take on the role of oil money in politics?
I believe that money is negatively impacting our political system broadly, and is clearly making an energy policy impossible. There are forces and counter-forces using money for contradictory purposes. Such money holds sway on elected officials who have nowhere else to turn to pay for their political campaigns. Some countries make political contributions from organizations and individuals illegal. I believe there should be fixed-amount public monies for campaigns.
Your book seeks to deconstruct the myth of energy independence and points out that the idea has been around for 35 years, and in that time our dependence on other countries for oil has actually increased. Do you think energy independence is a good goal?
I think if energy independence is an outcome of a continuous flow of good, sound decision making, that’s wonderful; that’s great. But I don’t think that should be the objective because we live in a global trading world. If we have something we should sell, shouldn’t we sell it? If we have something we can buy, shouldn’t we buy it and make those decisions as part of a global community? But if, on the other hand, we have technological advantages and natural resource advantages that we put our minds to and apply that advantage to our own benefit and we end up producing most, if not all, of our own domestic energy for domestic consumption, we’re much more secure. If it’s affordable energy, we’re much better off economically and we can do other global trading on other commodities, other material things, other products.
Richard Nixon first said, ‘energy independence in seven years.’ The current administration says, ‘no Persian Gulf oil by 2016.’ How are they going to do that? They don’t have a clue, yet they make that commitment to the American people as a sacred part of their trust relationship. And then you have the current round of advertising by some organization that shows the ugliness of the BP oil spill and the need for a new energy economy, and they show windmills and solar farms. Windmills and solar farms aren’t going to replace oil. They can’t and they won’t because they are used for different purposes.
You discuss in your book what you see as the shortcomings for alternative energy sources like wind and solar. Where do you see the status of research right now for both those forms of power and future forms of power?
I think the primary area for research on the future of energy should be the nanotechnology opportunities for more effective and more efficient materials for solar panels. We’re not there yet on the maturity curve for efficient solar panels; a lot more needs to be done, and it needs to be done at the molecular level, and that means nanotechnology research. I’m a big fan of using taxpayer money for nanotechnology research on material design, because the sun, by the end of the 21st century, beginning of the 22nd, could be our major source of energy if we can develop more efficient materials to convert sunlight into electricity. Wind energy is pretty far down the maturity level. Turbines are getting to a point where they’re reaching a size and scale to reach about optimum. But the problem with wind is that it doesn’t always blow, so that means research about the storage of electricity is required. It’s got to go beyond battery technology; batteries have never yet proven themselves as a good source of storing electricity. And then transmission. The transmission lines we have today consume a considerable amount of electricity just carrying the wattage from where it’s produced to where it’s consumed. A lot of inefficiency exists in the material that the electricity is conveyed across. So superconductivity would be zero loss of efficiency in the transmission of electricity. We need to find affordable ways to apply superconductivity technology, which requires research. And then the biochemistry of biomass. I think we have yet to discover how to scale biomass to liquid fuels. We can produce liquid fuels from biomass, but it’s costly and it’s very low quantities. So figuring out the biochemical reactions of living plant fiber or the molecules of whatever material we’re using and how to scale that into rapid decomposition to produce energy from it still requires considerable research. So there’s a lot of research required for our energy future.
In your book, you discuss the potential for an energy abyss if actions aren’t taken. And you say New Mexico will fare better in the energy abyss, but also that people would end up flocking here because we’d be one of the few states that still had power.
New Mexico is one of those states that has for many years balanced its energy supply and energy demand with a wise concoction of multiple sources of energy. It hasn’t obliterated certain kinds of energy from being produced. It has encouraged a range of energy. When I met with Gov. [Bill] Richardson, the first question to me was, ‘How much are you drilling in New Mexico?’ which was a sound question. ‘How much do you want to drill here?’ was his second question. It reflected a balanced approach to energy supply, and we talked about everything from drilling to hydrogen to solar. New Mexico has the benefit of wind and solar and nuclear—you have Los Alamos [National Laboratory], so you know a little bit about nuclear—and you know about coal and oil and gas and hydropower. You’re one of these states that has one of the best opportunities to be not just self-efficient, but also an energy exporter to other states.
You express a lot of environmental views, but you think the climate change debate is a waste of time. Explain.
It’s the way it’s being used to divide the values and norms of our societies. Both sides of the climate debate are making it a moral issue, and I consider the issue to be: How do we manage physical waste, liquid waste and gaseous waste? What if we put it in a context of waste management solutions of the natural detritus of a society that consumes many different things? If we didn’t have good rules to govern physical waste, we’d be suffocated. With liquid waste, we’d be poisoned. And if we don’t figure out good rules for gaseous waste management, we will be impacted by respiratory aliments. I don’t want to suffocate, I don’t want to die of poisoning and I don’t want to die of asphyxiation, and I don’t think anyone else should either. Whether it’s the filthy skies of China, which desperately need to be cleaned up, or the other kinds of pollutants we emit every day from US smokestacks and US tailpipes, I think we need to be cleaner. We may need regulation to do that; we may need incentives to do that. I think cap and trade is an incentive; I think carbon tax is a disincentive. So I think we can make choices, but the bottom line is: Let’s clean our air, land and water; let’s talk about how clean we can make it and not whether there is or isn’t global warming. Because if there is, the solutions I’m suggesting will help it. If not, the solutions will improve the quality of life.
You write quite a bit about land use policy and, for example, cite James Kunstler’s writing about sprawl and the impacts it’s had on our society. You don’t go into alternative transportation issues that much. What kind of role would that play in shaping energy policy?
I do make the point that absent a commitment to massive public transportation investment, we will be completely reliant on personal mobility, which is really energy inefficient. When you consider what the European countries have done over many years to provide all income levels with mobility through public transportation, and what China is currently doing to provide its population mass transportation, we should be considering that in this country. I give it kind of a low scale of interest because, as I travel the country, I find very few communities where people are really interested in it. Our culture still has this affinity with personal mobility; we love it, and we’re willing to sacrifice other things to protect our personal mobility.
Tell me about your group, Citizens for Affordable Energy, and what its goals are.
In my outreach [as president of Shell], I focused on pragmatism and the facts, and thousands of people responded well to the facts and to pragmatic solutions. [So I] concluded that when my corporate career ended, I could best serve the nation by trying to take facts and pragmatic solutions to the grassroots of America to help them appreciate and understand what’s possible. We’re not a lobbying group. We’re funded by contributions from private citizens. We’re not taking funding from energy producing companies; we don’t want to be a front company. Our interest is in consumers and in the 21st century energy system— how we transition from where we’ve been to where we go.
Do you have any regrets from your time as president of Shell?
As I say in my book, my inability to better inform both elected officials and the general public about the energy issues and potential solutions weighs heavily on me because of the time we have lost in creating sound policy for the future.
Why We Hate the Oil Companies
Straight Talk from an Energy Insider
By John Hofmeister
Americans have long had a love-hate relationship with the oil industry. Myself included.
Although I spent the last third of my corporate career working for Royal Dutch Shell, one of the world’s largest international oil companies, and the final three years as president of its U.S. subsidiary, Shell Oil Company, my perceptions of the industry were shaped long before I first stepped through the doors of Shell’s elegantly understated European headquarters back in September of 1997.
I started paying attention to energy policy the year Richard Nixon turned out the Christmas lights. It was 1973, and I had just started working as a management trainee at General Electric’s lighting headquarters in Nela Park, near Cleveland, Ohio. On October 20, Saudi Arabia, supported by other Arab states, cut off all oil supplies to the United States as retaliation for U.S. funding of Israel in the latest Arab-Israeli conflict. To conserve energy during the embargo, Nixon asked Americans to turn off their Christmas lights. GE, of course, was in the holiday light bulb business. At the company’s campus where I worked, our Christmas lighting display was a local historic landmark.
Generations of Cleveland-area families looked forward to an annual drive-through of the displays. GE made the symbolic gesture of turning off the lights to comply with the president’s request, but the real impact was that we had to lay off hundreds of local employees in a matter of months because of the drop in business caused by that government policy decision. Just down the road from Nela Park was the Gulf station on Euclid Avenue where I filled up my stripped-down 1972 Chevy Nova. During the embargo, the station owner wore a pistol on each hip because customers were fighting over places in the gas lines and he wanted order, not chaos. Over the next 25 years, as I moved into management and executive positions at companies that were large consumers of energy, oil shocks and surpluses played havoc with business planning, and I continued to manage uncertainty around energy costs. During my 15 years at GE, we were continually buffeted by the energy waves, as prices spiked and fell and alternative forms of energy rose in favor then quickly ebbed. In 1979, when an Arab oil cutback sent U.S. gasoline prices soaring, then-president Jimmy Carter announced a huge push to create synthetic crude oil from coal and oil shale deposits in the Rocky Mountains. He projected 2.5 million barrels of production by 1990. Three years later, oil prices had fallen, and on May 2, 1982, a day remembered in Colorado as Black Sunday, Exxon shut down its synthetic crude operation, eliminating thousands of jobs on the remote western slope of the Rockies. Over the next several years of my career I was at Nortel, a global telecommunications technology company, and AlliedSignal, a large aerospace, automotive, and engineered materials company, that later acquired Honeywell and took its name. Both companies were large energy consumers that benefited from a period of mostly low oil prices. However, when the first Gulf War took place in 1992, I was at AlliedSignal’s aerospace business, and the airline industry lost more profit that year than it had made in its entire history, due to the high cost of fuel and loss of customers. We shed some 20,000 employees in the restructurings that followed.
After 24 years on the consumer side of oil, I joined Shell. I had worked in companies that paid for the consequences of oil energy policies—or the lack of policy—and I wanted to see if it was possible to make a difference on the energy producer side. I did not have the traditional petroleum engineering or geophysics background of an energy executive—my degrees were in political science—but I had a strong global business strategic and leadership experience, a diverse background in marketing, manufacturing, and human resources, gained at top Fortune magazine-rated companies, and I believed that sometimes an outsider can provide afresh perspective and accomplish more—or so I hoped.
What I found at Shell was a company that pushes the frontiers of technology, employs many of the smartest people on Earth, enables economic growth and development around the world, increasingly appreciates and responds to sustainable development needs, and provides solid shareholder returns. Yet it is a company in one of the most hated industries in the United States, an industry that consistently ranks at the bottom in reputation polls.
That animosity came to a head after Hurricanes Katrina and Rita hit the Gulf Coast in the late summer of 2005, just months after I became president of Shell Oil Company. Prices had been climbing for the past three years, but the serious supply disruptions caused by the storms sent prices skyrocketing. I started receiving hate mail, including a drawing showing me hanging in effigy. Not exactly what I expected when I took the job.
In June 2006, Jim Mulva, chairman of ConocoPhillps, Dave O’Reilly, chairman of Chevron, and I appeared together on Meet the Press, where host Tim Russert began by confronting us with a set of negative poll numbers and asking us, “Why is that?”
Excerpted from Why We Hate the Oil Companies by John Hofmeister. Copyright (c) 2010 by the author and reprinted by permission of Palgrave Macmillan, a division of Macmillan Publishers Limited. All rights reserved.